Skip to main content

Review investment if your fund is below peers consistently

 

Absolute returns may mislead as it captures point-to-point returns LOOK at different periods. If the performance is still bad, look at peer

DEPENDING on market conditions, new fund offers (NFOs) and existing schemes of mutual funds will throw up varied returns. As an investor, worst fears come true when your fund shows below-par returns or negative returns.

Should an investor react to point-to-point returns or should he/she wait to see regular performance to spot the dud fund?


Experts advise that there is no `magical' way to decide whether a fund is a lemon but ask investors to use different parameters to adjudge its success or failure.


Absolute figures may mislead: If your mid-cap fund is down 12 per cent in a one-year horizon that does not mean that the fund manager is fleecing you.


Comparing absolute returns may be misleading because they capture point to-point returns. The first step is to look at relevant index or benchmark, such as BSE Midcap.

But then, if the fund shows underperformance, don't give up fully on it.


Look at different periods: If the performance is still bad, look at peer performance. It may well be that the markets were soft during a single period due to which the fund's absolute performance for say 12 months looks poor. As an investor, if you see that the fund does not have sufficient historical data, you have two choices -stay or exit. Stay put or exit immediately? That is a timeless question. Research and different studies point out that investors attach emotion to their investments, even if it is a mutual fund. As a thumb rule, if your money in an NFO does not increase in three years, it could be time to review the investment.

You have to admit it was a bad investment for you as you could not make money. Take a hit and then take a fresh call

Admittedly, certain categories of funds like thematic funds or sector funds are riskier bets than a plain vanilla diversified fund that has no bias towards a particular sector or theme.
The possibility of disappointment is higher in the thematic/sector funds, experts pointed out.


Other factors: Due to fund manager change or takeover by another fund management company, investors should pay more attention. If the sole reason for your investing in a fund was due to star manager who has quit, any below-par performance in the fund would make an investor anxious.

It is very rare that a fund or a category of funds continue to perform badly over long stretches of time.
Do not take decisions based on six-month time periods.
One thing should be clear.
A mutual fund manager has to be given time to perform. But if he/she still can't, then investors have every reason to be angry
 

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now